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Chapter 13: Q28E_2 (page 714)

Computing dividends on preferred and common stock and journalizing

The following elements of stockholders鈥� equity are from the balance sheet of Sneed Marketing Corp. at December 31, 2017:

800,000

Preferred Stock鈥�4%, \(2 Par Value; 80,000 shares

authorized, 55,000 shares issued and outstanding

Paid-In Capital:

\) 110,000

Stockholders鈥� Equity

Common Stock鈥�$0.10 Par Value; 8,750,000 shares

authorized, 8,000,000 shares issued and outstanding

Sneed paid no preferred dividends in 2017.

Requirements

2. Record the journal entries for 2018 assuming that Sneed Marketing Corp. declared the dividends on July 1 for stockholders of record on July 15. Sneed paid the dividends on July 31

Short Answer

Expert verified

Retained Earnings will be debited; Preferred stock dividend and Common stock dividend will be credited.

Preferred stock dividend and Common stock dividend is debited; Cash is credited.

Step by step solution

01

Basic Introduction-

Retained earnings is the portion of the income earned by the company which are not distributed in the shareholders and retain in the business for growth purposes.

02

Journals

Date

Transaction

Debit

Credit

July 1

Retained Earnings

$185,000

Preferred stock dividend

$4,400

Common stock dividend

$180,600

To record dividend declared

July 15

No entry

July 31

Preferred stock dividend

$4,400

Common stock dividend

$180,600

Cash

$185,000

To record dividend paid.

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Most popular questions from this chapter

Question: Journalizing a large stock dividend

Nelly, Inc. had 320,000 shares of \(2 par value common stock issued and outstanding as of December 15, 2018. The company is authorized to issue 1,300,000 common shares. On December 15, 2018, Nelly declared a 40% stock dividend when the market value for Nelly鈥檚 common stock was \)7 per share. The stock was issued on Dec. 30.

Requirements

1. Journalize the declaration and distribution of the stock dividend.

Journalizing stock issuance and cash dividends and preparing the stockholders鈥� equity section of the balance sheet

C-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes C-Mobile to issue 120,000 shares of 9%, \(150 par value cumulative preferred stock, and 140,000 shares of \)3 par value common stock. During the first month, C-Mobile completed the following transactions:

Oct. 2 Issued 18,000 shares of common stock for a building with a market value of \(260,000.

6 Issued 650 shares of preferred stock for \)160 per share.

9 Issued 14,000 shares of common stock for cash of \(84,000.

10 Declared a \)13,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable account for preferred and common stock.

25 Paid the cash dividend.

Requirements

1. Record the transactions in the general journal.

2. Prepare the stockholders鈥� equity section of C-Mobile鈥檚 balance sheet at October 31, 2018. Assume C-Mobile鈥檚 net income for the month was $95,000.

Vollmer, Inc. had reported the following balances:

December 31, 2019 December 31, 2018

Net Income \( 80,000 \) 60,000

Preferred Dividends 2,000 5,000

Total Stockholders鈥� Equity 340,000 310,000

Stockholders鈥� Equity attributable to Preferred Stock 20,000 20,000

Number of Common Shares Outstanding 10,000 14,000

11. Compute Vollmer鈥檚 earnings per share for 2019.

12. Compute Vollmer鈥檚 price/earnings ratio for 2019, assuming the market price is $40 per share.

13. Compute Vollmer鈥檚 rate of return on common stockholders鈥� equity for 2019.

Preparing a statement of retained earnings

Kingston, Inc. had beginning retained earnings of \(135,000 on January 1, 2018. During the year, Kingston declared and paid \)85,000 of cash dividends and earned $75,000 of net income. Prepare a statement of retained earnings for Kingston, Inc. for the year ending December 31, 2018.

What is a corporation?
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